ONE stock portfolio

BradMM said: "Okay, I'm actually not suggesting that I do this entirely but here's the deal. My wife and I have maxed out our pre-tax options through our employer where we have only mutual funds to chose from. So, I started Roth accounts for both of us and am not happy with the $6k limit (this year anyway) so I'm looking at reopening my brokerage account. Since most of our funds are currently already going into pre-tax, I won't be making large investments if I open the brokerage account. In our Roth's, I've put everything into POT which I first bought at 132 in late January. It recently topped 220 although it's down today. Both in the Roth and in the brokerage acct, I can buy and sell at will unlike the mutual funds (penalties if less than 89 days). Part of this is that I really don't like the performance of the mutual funds as compared to my one stock that I put into the Roths. I realize this may be just dumb luck on my part but I have one or two other stocks that I'm researching as a back up plan should this one sour... which I don't see happening. So, the question is, although I know all the advisors say to diversify, if I put it all into ONE stock, I can watch it very closely, study all that I can find about that one and, if I need to move it, there is only one fee. Why is that a bad strategy? If the stock looks like its going the wrong direction, I pull out and go into a money market account where I preserve the value of my investment until I find a better place to put it. :talk028:"

Roger said: "bradmm wrote [QUOTE]So, the question is, although I know all the advisors say to diversify, if I put it all into ONE stock, I can watch it very closely, study all that I can find about that one and, if I need to move it, there is only one fee. Why is that a bad strategy? If the stock looks like its going the wrong direction, I pull out and go into a money market account where I preserve the value of my investment until I find a better place to put it. [/QUOTE] I strongly recommend you to diversify. It often looks very temptating to put everything in one, because many people think they will earn more. In the first place you state that you quickly sell if the stock declines. But what if there is realy bad news and the stock drops very terrible? If something like this happens, you will not be quick enough to respond. You also mention that you only have one fee when you need to move the stock. Well, if your portfolio is well diversified you dont need to move all the stocks. With diversification you eliminate the firm specific risk. The goal of an investor is beating the market. With putting everything in one stock you will definitely beat the market when the stock goes up sharply. But it is the other way around if the stock goes the other direction. This sounds pretty much like gambling to me. With good diversification you not just average the risk between the stocks, but your risk is even lowered. This is the big advantage of diversification. You dont need to follow the stock every second, affraid ofsomething to happen. Instead you can concentrate on picking good stocks (by good research). If your stock picking methid is succesful then you will beat the market (on a more scientific way, definitely not just gambling)."

Bob_sapp said: "[QUOTE=Roger;70887]bradmm wrote I strongly recommend you to diversify. It often looks very temptating to put everything in one, because many people think they will earn more. In the first place you state that you quickly sell if the stock declines. But what if there is realy bad news and the stock drops very terrible? If something like this happens, you will not be quick enough to respond. You also mention that you only have one fee when you need to move the stock. Well, if your portfolio is well diversified you dont need to move all the stocks. With diversification you eliminate the firm specific risk. The goal of an investor is beating the market. With putting everything in one stock you will definitely beat the market when the stock goes up sharply. But it is the other way around if the stock goes the other direction. This sounds pretty much like gambling to me. With good diversification you not just average the risk between the stocks, but your risk is even lowered. This is the big advantage of diversification. You dont need to follow the stock every second, affraid ofsomething to happen. Instead you can concentrate on picking good stocks (by good research). If your stock picking methid is succesful then you will beat the market (on a more scientific way, definitely not just gambling).[/QUOTE] What is your definition of "good research?" How are you able to tell that a CEO is not crooked and earnings are fudged? Why would a corporation say anything bad about itself in press releases?"

Roger said: "bobsapp wrote [QUOTE]What is your definition of "good research?" How are you able to tell that a CEO is not crooked and earnings are fudged? Why would a corporation say anything bad about itself in press releases?[/QUOTE] Of course there are possibilities that a company will try to make themselves looking nicer than their real state. But there are limits. Companies are audited, and it is not that almost every firm has a crooked ceo or fudges its earnings. By good research i mean study the company well. Look deep into their reports and try to find the potential of the company. Then you also can check the management and maybe you find somethng suspicious in the earnings."

BradMM said: "Thanks for the replies! I appreciate the feedback. As to the thoroughness of my research, I realize that one can never know EVERYTHING there is to know so that's almost a no-win argument. If all turns out well, you did a good job. If it goes to crap, then you didn't do your homework well enough. I have been subscribed to receive news of any SEC filings and I don't see any sell-offs by the people who would be required to report this. I bought the stock as it passed through it's 50 DMA and it's only dipped briefly through that line a few times since January. Despite its rise up to that point, I saw no reason for it to go south... nothing wrong with buying high and selling higher! The company produces products (fertilizer) with a particularly high demand currently due to the shift in cropland to producing corn etc for biofuels. Yes, this now has been determined to be in efficient overall and may shift again but I believe the "base" demand is relatively inelastic due to the fact that the world population continues to increase. Competition is limited (I looked at Mosaic, too) and new competition will not appear suddenly because it's extremely expensive to enter this market. The company is well financed without a heavy debt load. Like I said, I watch its performance everyday and continue to follow whatever I can find out about the company. Also, this is, in reality, only about 14% of my true portfolio so I was only really asking about the after tax dollars that I invest. This is for retirement and I also have a pension coming my way in about five years so, if I'm [I]completely wrong[/I], it will hurt but won't be devastating. It's a smaller portion of my wife's portfolio. Lately, we've been talking about NEVER retiring :th_dblthumb2: so this may be even less relevant. My wife works a full time job and teaches on the side. I do the same plus have a side business. So, we may retire from our 8-5 jobs but continue on with the others. Again, I appreciate the feedback. I realize that the way I phrased the question may have been misleading in that it's NOT the entirety of my portfolio but it's the entirety of my after-tax dollars portfolio. That may have changed your perspective, maybe not. Anyway, thanks!"

HappyT90 said: "Sometimes you may think you are following the news and you may think you know what's going on, but just think back to Enron. What happens if the the one stock you invest in is the next Enron. Think about it. It's definitely better to diversify."

Roger said: "@bradmm [QUOTE]Again, I appreciate the feedback. I realize that the way I phrased the question may have been misleading in that it's NOT the entirety of my portfolio but it's the entirety of my after-tax dollars portfolio. That may have changed your perspective, maybe not. Anyway, thanks![/QUOTE] Okey if the stock represents 14% its okey. [QUOTE]As to the thoroughness of my research, I realize that one can never know EVERYTHING there is to know so that's almost a no-win argument. If all turns out well, you did a good job. If it goes to crap, then you didn't do your homework well enough. I have been subscribed to receive news of any SEC filings and I don't see any sell-offs by the people who would be required to report this.[/QUOTE] One comment. You state that if it goes crap you didnt do your homework well enough. Well, even if you do your homework correct it can go crap. That's why i stress the importance of diversification. The firm specific risk is eliminated. [QUOTE] The company produces products (fertilizer) with a particularly high demand currently due to the shift in cropland to producing corn etc for biofuels. Yes, this now has been determined to be in efficient overall and may shift again but I believe the "base" demand is relatively inelastic due to the fact that the world population continues to increase. Competition is limited (I looked at Mosaic, too) and new competition will not appear suddenly because it's extremely expensive to enter this market. The company is well financed without a heavy debt load.[/QUOTE] From this part i can see that your investment is based on a good fundamental analyse. However you will never no what happens to the industry, and thats another reason for diversification. If you are able to pick the good stocks per sector (based on good fundamental analyse) with a good diversification, you should be able to ouperform the market. In my opinion it is not wrong to be invested in an oil related stock and an airline at the same time. As long as you put enough effort in your analyse to pick the right stocks in the sector."

Bob_sapp said: "[QUOTE=Roger;70906]bobsapp wrote Of course there are possibilities that a company will try to make themselves looking nicer than their real state. But there are limits. Companies are audited, and it is not that almost every firm has a crooked ceo or fudges its earnings. By good research i mean study the company well. Look deep into their reports and try to find the potential of the company. Then you also can check the management and maybe you find somethng suspicious in the earnings.[/QUOTE] Specifically what do you mean by "Look deep into their reports and try to find the potential of the company?" Also, how can you check the management? How do you know if a manager is good or bad? What specifically would you define as "somethng suspicious in the earnings?" I know you mean well, but how do you actually intend to do this? The people in the media who blow up "doing your research" are the few extremely wealthy people who make a business out of saying what stocks to buy, some who don't make money off stocks themselves. The average person can't employ a team of corporate lawyers, accountants, and analysts to go to the companies themselves and research it... I don't see why people think reading about a company's management or reading their earnings filings is going to give you a significant advantage. If you don't know enough about the stock and sector to feel confident investing in it, then maybe you just shouldn't be investing in it?"

Roger said: "bob sapp: [QUOTE]Specifically what do you mean by "Look deep into their reports and try to find the potential of the company?"[/QUOTE] Look into their projects, what do they have in the pipeline. Are their projects which are very promsing? For example i think the oil offshore sector is very promising. To be more specific i have good feeling on companies specialised in deepwater technology. So you can check what companies are specialised in this. Besides that you of course check the report on the healthyness of the finanicial situation. [QUOTE]Also, how can you check the management?[/QUOTE] This is a bit more difficult i admit. But in the first place you can check who is in the management, and look into their past. [QUOTE]What specifically would you define as "somethng suspicious in the earnings?[/QUOTE] Managers can use many techniques to smooth earnings. You should closely look into the financial statements. Example: When receivables increase much more than sales is very suspicious. [QUOTE]The people in the media who blow up "doing your research" are the few extremely wealthy people who make a business out of saying what stocks to buy, some who don't make money off stocks themselves. The average person can't employ a team of corporate lawyers, accountants, and analysts to go to the companies themselves and research it... I don't see why people think reading about a company's management or reading their earnings filings is going to give you a significant advantage. If you don't know enough about the stock and sector to feel confident investing in it, then maybe you just shouldn't be investing in it?[/QUOTE] I see you have a very pessimistic view on the average persons ability to judge a company. You can see in the above answers that it doesnt need to be the case. You must learn the techniques to value a company, and now the things to look at. I am convinced that you can pick the better stocks by looking deep into their reports. In an annual report there are plenty of things where you can look at. And also outside the report there are techniques to judge the company. You should create some kind of model with all these factors."

ANUJ 10 said: "can anybody guide me to build my portfolio i have 10000$ to invest."

Aligator said: "[QUOTE=BradMM;70863]...............So, the question is, although I know all the advisors say to diversify, if I put it all into ONE stock........................why is that a bad strategy?[/QUOTE] May not be a bad strategy; especially if it works. Or it may not be a bad strategy if you are young and willing to work the extra years it may take to recover from a failure. One thing you will want to prepare for and watch for: Greed. You'll start to view yourself as some sort of gifted investor, decide you "should" be wealthier and eventually lose it all."

rmani said: "[QUOTE=ANUJ 10;70972]can anybody guide me to build my portfolio i have 10000$ to invest.[/QUOTE] 10k is a good base to start with. You might want to start off with mutual funds. I'd suggest buying 2 in 5k chunks. Stick to 4 and 5 star rated, no load no transaction fee funds."

BradMM said: "[QUOTE=Aligator;70982]May not be a bad strategy; especially if it works. Or it may not be a bad strategy if you are young and willing to work the extra years it may take to recover from a failure. One thing you will want to prepare for and watch for: Greed. You'll start to view yourself as some sort of gifted investor, decide you "should" be wealthier and eventually lose it all.[/QUOTE] I'm still not convinced that it's bad for ME in the context of what I've described, i.e., it's only the after-tax dollars I'm talking about and not the $40k my wife contribute pre-tax into our 403b's... which [I]has to go into mutual funds[/I]. Young? We couldn't contribute $6k to our Roth's if we were under 50... which we're not. In my first post, I suggested that this may have been "dumb luck" but it wasn't a shot in the dark - it was planned and researched - and I haven't made any subsequent moves although I'm constantly looking for an exit strategy should I need one. With MON missing sales expectations recently, things have slid backward for Ag Chemicals but I'm watching to see if I need to bail. Rule #1 - NEVER LOSE MONEY... or at least, [I]try not to[/I]! :biggrin5:"

Roger said: "aligator: [QUOTE]May not be a bad strategy; especially if it works. Or it may not be a bad strategy if you are young and willing to work the extra years it may take to recover from a failure.[/QUOTE] Do you agree with me that this strategy approaches gambling?"

Aligator said: "[QUOTE=Roger;70996]aligator: Do you agree with me that this strategy approaches gambling?[/QUOTE] Yeah, I suppose it does. But then we could quibble about our definition of gambling, too. Thing is, I hate to see someone go through life always wanting to try this or that and never have the chrome cajones required to go for it. But maybe I've tried one or two thing too many........I've been in 49 states, 18 foreign countries, fought in a war, I've been a mechanic, truck driver, salesman, home inspector, sailplane pilot, sailor, writer and a whole bunch of other things that don't pay anything. And yes, once upon a time I had the same idea as BRAD. Didn't work out for me; maybe it'll work for him. And even though it didn't work out for me it didn't really hurt anything, either. We still have plenty to live on and Hey!, look how smart we are! When he gets through he'll be smart, too. :cool:"

BradMM said: "Alligator, Dude, you sound like a pretty interesting guy! I'd love to sit down and have a beer/soda/papaya juice with you and chat. Your sig line says you put your $$$ in mutual funds and, for the most part, so do we. It's just the "extra" I was talking about "risking" to the extent this is a risk. I currently work two jobs and have a small business on the side. I think that MAKING money is more profitable than relying on investments but you have to put it somewhere if you're going to try to have some for later so that's my goal, have as much for later as I can."